Correlation Between Exxon and Firm Capital

Can any of the company-specific risk be diversified away by investing in both Exxon and Firm Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Exxon and Firm Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EXXON MOBIL CDR and Firm Capital Mortgage, you can compare the effects of market volatilities on Exxon and Firm Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Exxon with a short position of Firm Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Firm Capital.

Diversification Opportunities for Exxon and Firm Capital

-0.67

Correlation Coefficient

Exxon  Firm Capital

Excellent diversification

The 3 months correlation between Exxon and Firm is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and Firm Capital Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firm Capital Mortgage and Exxon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on EXXON MOBIL CDR are associated (or correlated) with Firm Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firm Capital Mortgage has no effect on the direction of Exxon i.e., Exxon and Firm Capital go up and down completely randomly.

Pair Corralation between Exxon and Firm Capital

Assuming the 90 days trading horizon EXXON MOBIL CDR is expected to under-perform the Firm Capital. But the stock apears to be less risky and, when comparing its historical volatility, EXXON MOBIL CDR is 1.23 times less risky than Firm Capital. The stock trades about -0.67 of its potential returns per unit of risk. The Firm Capital Mortgage is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,166  in Firm Capital Mortgage on September 23, 2024 and sell it today you would earn a total of  21.00  from holding Firm Capital Mortgage or generate 1.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

EXXON MOBIL CDR  vs.  Firm Capital Mortgage

EXXON MOBIL CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EXXON MOBIL CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Firm Capital Mortgage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Firm Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Exxon and Firm Capital

The main advantage of trading using opposite Exxon and Firm Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Firm Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Firm Capital will offset losses from the drop in Firm Capital's long position.

The idea behind EXXON MOBIL CDR and Firm Capital Mortgage pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.